Hans-Werner Sinn, Professor of Economics and Public Finance at the University of Munich, was President of the Ifo Institute for Economic Research and serves on the German economy ministry’s Advisory Council. He is the author, most recently, of The Euro Trap: On Bursting Bubbles, Budgets, and Beliefs

The Promise and Peril of Global Change

MUNICH – Panta rhei . Everything flows. This Greek aphorism often comes to mind when I think of the economic and political changes in my lifetime. They seemed as impossible before they occurred as they have felt natural in retrospect. Communism fell. Germany was united. The United States elected a black man president. And now we are in a phase in which Asia is catching up with the West and American hegemony is being challenged.

While American casino capitalism has collapsed, and America’s European economic satellites are suffering, China seems to be taking advantage of the situation, increasing its trade surplus in the midst of the global economic crisis. Indeed, in the first four months of this year, China became the world’s leading goods exporter, overtaking Germany, the previous champion.

It is true that in other economic terms, China still lags far behind. Although China accounts for 20% of the world’s population, its share of global GDP currently is only 7%. By contrast, the United States and the European Union account for 54% of global GDP, despite having only 12% of the world’s population.

But these figures are changing rapidly, owing to China’s exuberant growth. From 1995 to 2008, China’s economy grew by 229%, while the world economy grew by 63%, the US by 45%, and 27-member EU by only 37%. It may be difficult for China to ever match the success of a small Asian country like Singapore, which has already overtaken the US in terms of GDP per capita as measured by purchasing power parity. Yet China will undoubtedly become the world’s largest economic power in the foreseeable future. To achieve this leadership position, it needs less than a quarter of US per capita GDP, because its population is more than four times larger.

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